Leading figures from the business world also voiced their disquiet, with Lord Digby Jones, the former head of the CBI, saying there was a "faint whiff of the lynch mob on the village green" surrounding the politically pressured decision to revoke the knighthood awarded to the former chief executive of Royal Bank of Scotland for services to banking in 2004. "But, that isn't to say that the end result isn't what is right," he added.

Writing in the Times, Darling said: "There is something tawdry about the government directing its fire at Fred Goodwin alone; if it's right to annul his knighthood, what about the honours of others who were involved in RBS and HBOS?"

The former chancellor, who led the negotiations over the £45bn taxpayer-funded RBS bailout, told the BBC Today programme that the government appeared to be "going after individuals" without following due process. He said that while Goodwin was the "author of his own misfortune", he had not been convicted of any crime: "Are we going out after other knights of the realm involved in this? In the House of Lords you've got people who have been to jail but are still allowed to vote."

Darling also warned that the decision to publicly humiliate Goodwin could affect Britain's reputation for business around the world. "We will be in an awful lot of trouble here if we go after people on a whim," he said.

All the main party leaders welcomed the decision, which came about after the prime minister asked the committee to consider Goodwin's knighthood.

David Cameron said "we've ended up with the right decision," while Labour leader Ed Miliband said it was "only the start of the change we need in our boardrooms" and Nick Clegg, the Lib Dem leader and deputy prime minister, said it was the "right" decision.

George Osborne, the chancellor, said Goodwin represented "everything that went wrong in the British economy over the last decade".

There was support for Goodwin from former Formula One world champion Sir Jackie Stewart, who is a friend of the disgraced former RBS boss, although he said he had not spoken to him since the decision. "He's turned all his phones off."

Stewart said he thought Goodwin had been made a scapegoat: "No single person or even any single bank created the biggest financial recession in modern times."

Simon Walker, the director general of the Institute of Directors (IoD), warned that political revelry in the decision risked sparking "anti-business hysteria".

"To do it because … you don't approve of someone, you think they have done things that are wrong but actually there is no criminality … is inappropriate and politicises the whole honours system," Walker told the BBC.

John Mann, the Labour MP for Bassetlaw, said politicians will be "accused of hypocrisy" unless they also take action against disgraced members of parliament and the Lords.

"The danger is that there is a presumption that there was a rogue banker, and there was one man who was getting it wrong. In fact it was many bankers, including the whole board of RBS," he added.

"Senior politicians will now say, 'we can move on, we got the guilty man'. It wasn't one guilty man. There were many more bankers and the culture of banking was so that there were huge numbers of people taking excessive risks. If we are going to reward those who gambled and succeeded, but punish those who gambled and lost, we are supporting the whole system of reckless banking."

Mark Field, the Tory MP for the City of London, said the "song and dance about the knighthood is a sideshow. I'm much more concerned that he's collecting £370,000 a year in pension.

"That was signed off at a time when we knew that most of the so-called profits RBS had achieved over the years of Fred Goodwin's stewardship were in fact entirely illusory."

Michael Fallon, the deputy Tory chairman who sits on the Treasury select committee, said: "This was the biggest bank failure in history … he was the chief executive who ran this bank into the ground.

"The public rightly feel he got away with it scot free. He walked off with this vast pension. We've had this persistent demand from the public as to why this man was allowed to retain this honour that was awarded for services for banking, that can't be right, and I think this independent civil service committee has come up with the right conclusion."

David Fleming of the Unite union, which represents bank workers, said: "It is a token gesture to strip Fred Goodwin of his knighthood, but one which will be well received by the thousands of workers who lost their jobs during his rule. Action from the government is needed in banking reform, not simply empty rhetoric on knighthoods or shareholder activism."